60 seconds with Johanna Kyrklund on QE "fatigue"

Record low interest rates and huge bond buying programs have been in place for the best part of a decade, but is the impact of quantitative easing (QE) on markets subsiding?

29/03/2016

Johanna Kyrklund

Global Head of Multi-Asset Investments

In recent years markets have been dominated by two key trends:

Extensive QE by the major Western central banks which has inflated the prices of many assets.

The more cyclically-exposed areas of markets languishing because global growth has not been strong enough to sustain their performance.

To some extent we are suffering from QE fatigue. Recently, for example, the Bank of Japan moved to negative interest rates. Consequently, the market rallied for a couple of days, but went straight back down again.

We reduced risk in our multi-asset portfolios last year because we think that some of the beneficiaries of QE are looking quite tired.

However, we are starting to see relative value in some of the more cyclical areas of the market, such as high yield debt, value stocks and emerging market currencies.

In recent years we have danced to the central bankers' tune. With rates pinned at 0% we correctly judged that the path of least resistance, for developed equities in particular, was up. As we move into 2015, however, it might be time to sit some of the dances out.

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